Ron Conway steps back as Y Combinator cuts team funding

Ron Conway of SV Angel is seen by many as one of the most important technology investors in the world.
Daniel Terdiman/CNET

Superstar angel investor Ron Conway will no longer be part of the team of investors giving money to the dozens of startups taking part each year in Y Combinator, one of the world's most prestigious incubators.

Y Combinator said today that it is sharply reducing the amount of venture funding each startup coming through the program is given. For the last two years, each team was seeded with $150,000 in funding from Conway, of SV Angel, Yuri Milner, and Andreessen Horowitz. Starting today, that amount has been slashed to $80,000 per team, the incubator said, as it attempts to provide each startup with just enough money to make it through a year of building a young company.

In its announcement, Y Combinator noted that four investors -- Milner, Andreessen Horowitz, General Catalyst, and Maverick Capital -- will be providing $20,000 for each team. Perhaps more notable is that Conway is missing from the list of VCs participating in the funding.

Y Combinator chalked up its decision to cut the funding amount to prudent planning, and the desire to avoid the squabbles over money that often arose among the founders of unsuccessful teams.

Y Combinator founder Paul Graham
Daniel Terdiman/CNET

In an interview, Y Combinator founder Paul Graham told CNET that while the decision to cut the funding amount had been in the works for several months, the incubator made the announcement today because it will start interviews for its winter program tomorrow. "Since we're changing the deal for the startups," Graham said, "we had to tell them before we interview them."

Graham explained that while some teams going through Y Combinator are able to quickly raise additional venture capital and others need a little more time to mature, many startups going through the program are "doomed" to failure. And in those situations, the funds left over from the $150,000 investment was "turning founder breakups into situations like a divorce where there's a large estate to break up," Graham said.

Indeed, Graham added, Y Combinator partner Jessica Livingston said she spent the majority of her time during the incubator's previous program (it runs two sessions per year) dealing with disputes among the founders of so-called doomed teams.

Each Y Combinator team will also get around $20,000 from the incubator itself. And while the VCs investing in the teams will be providing less overall money than in the past, they will still be heavily involved. In its announcement, the incubator noted that partners from the VC firms will be holding regular office hours.

The thinking behind decreased funding
While new Y Combinator teams will be getting less money to work with, Graham said the decision was not based on any assessment that the general startup economy is in trouble. In fact, he said, the investors had wanted to give more, but he and his partners didn't want the number to be too high and result in unnecessary disputes.

As for Conway's absence among the group of investors, Graham said it was likely due to SV Angel's small size relative to the two venture capital firms and two late-stage investors participating, and that it "actually didn't make a lot of sense for [Conway] to be doing it in the first place."

To be sure, Conway will still be involved in Y Combinator in some fashion, albeit not materially. And Graham said that Conway's two years of participation was likely a result of him having just gotten "super excited about the idea" in discussions with Milner.